I am an e-Money researcher and crypto economist focused on expanding the circulation of nonpolitical digital currencies. My career has included senior influential posts at Sumitomo Bank, VISA, VeriSign, and Hushmail. Currently, I serve on the Board of Directors for the Bitcoin Foundation.

Economist Appearing On Max Keiser Show Forced To Resign

It’s been confirmed now that economist Sandeep Jaitly has been forced to resign his position from The Gold Standard Institute following his on-air remarks about Ludwig von Mises and Ayn Rand. Jaitly, a follower of Antal Fekete, originally tweeted that “If it ain’t Menger or his direct student Eugene [sic] Von BB, it ain’t Austrian. Sorry #Mises: respectfully, too many mistakes were made.”

Mises didn’t look back to Menger’s original axiom which was that value is not outside of your own consciousness. And he didn’t observe what Menger observed about market action in the sense that there are always two prices, there’s a bid and an offer. And von Mises didn’t like to admit that interest was a market phenomenon. He sort of wanted to imply that it’s a sort of natural consequence of not having a present good basically. So to develop a theory of interest without going back to Menger’s original observations is not continuing the tradition in the Austrian way as we would see it.

Then, after much debate in the blogosphere, someone known as kdt posted this text purporting to come from The Gold Standard Institute on August 25th:

Lest there be any misunderstanding, the views expressed by Sandeep Jaitly in his interview with Max Keiser (http://maxkeiser.com/tag/carl-menger/) are not the views of The Gold Standard Institute. To the contrary, we strongly disagree with those views. There is no doubt that Ludwig von Mises made mistakes; that should not diminish the respect due to a great scholar. The mistakes of Mises are dwarfed by the enormity of his positive contributions. The Institute believes that history will judge Ludwig von Mises far more kindly than does Mr. Jaitly. The Ayn Rand diatribe was of a tone that displayed little understanding of her philosophy and needs no further comment. The philosophy of The Gold Standard Institute has always been, and will remain, to debate and promote ideas, not to attack people.

Sandeep Jaitly has resigned from his position as Senior Research Fellow with the Institute and we sincerely thank him for his past contributions.

Philip Barton President

In an email confirming the action, Sandeep Jaitly explained to me, “apparently, they don’t want to burn bridges,” and I take this to mean bridges with large benefactors and partners. However, Jaitly is unfazed and vows to continue his work including a PhD acceptance speech on the Ludwig von Mises split from Carl Menger and Eugen von Böhm-Bawerk regarding certain aspects of interest rate theory.

I like Sandeep because he challenges orthodoxy in a thoughtful way. Aside from the illuminating monetary debate sparked by Jaitly, as a guest on the Keiser Report myself, the forced resignation of an economist is both interesting and disturbing. Frequently, I find myself challenging the orthodoxy of the Mises’ Regression Theorem on the origin of money when it comes to the nature and value of bitcoin as money.

Mises has written that, “Value is not intrinsic, it is not in things. It is within us; it is the way in which man reacts to the conditions of his environment.”

While I and other Austrians wholeheartedly agree with Mises on this, the notion of a decentralized bitcoin has eluded many in the economics profession. Peer-to-peer bootstrapped currencies secured by cryptography in a distributed computing project were not anticipated by Menger nor Mises. They are a reaction to our ‘politically-hostile’ environment for free market currencies. Public-key cryptography, as opposed to symmetric key cryptography, is a relatively new phenomenon that Austrian economics has not yet come to terms with.

Some may not like it, but bitcoin is a Mengerian-, Misean-, Rothbardian-, Austrian-currency in its purest form. Still actively debated within the Austrian economics community on whether or not bitcoin satisfies the regression theorem, I have gone so far as to propose a corollary.

It’s not surprising that this Max Keiser television dialogue caught the attention of Austrian scholar Tom Woods who responded swiftly on LewRockwell.com. According to Jaitly, Woods is still refusing to appear on a television debate about the issues. I encourage Woods to accept Jaitly’s offer to appear and I also agree with John Robb who said, “The only real debate that remotely matters between the Mises faction and the Fekete faction regards their difference in perspectives on the merits and pitfalls of the Real Bills Doctrine. That would make a fine core issue for debate between Sandeep Jaitly and Joe Salerno or Guido Hülsmann.”

As Lawrence White has pointed out, while real bills circulation via discounting can function adequately as a credit instrument in an environment of free banking, the Real Bills Doctrine is a dangerous idea when applied to a central bank that has no true market-based restrictions on issuance. The fractional-reserve free banking contingent within the Austrian School would largely agree with this notion too. (For the anti-fractional-reserve Austrian viewpoint on real bills, please see Did Real Bills Enable the Growth of Trade? by Robert Blumen.)

Lately, I have become a regular reader of Dave Harrison’s Trade With Dave, which covered Keiser’s original interview with Jaitly in July 2011. Dave also writes a lot about how the Austrian School of economics is “being co-opted by the progressive political movement through a very crafty scheme known as Libertarian Paternalism.” He sums up the entire Keiser – Woods, Fekete – Mises debate nicely:

What is relevant, at least from Dave’s perspective is how the debate revolving around gold is most definitely rising in the consciousness both inside and outside the Beltway. Just this week, as you probably read, the Republicans are forming a ‘gold commission’ as part of their official platform pre-convention. You can attack this subject matter on lots of levels. There’s a debate at the lowest level that I would say is where the powers that be in the Republican Party are coalescing around the subject matter. There’s a debate at a slightly higher level between the libertarians and libertarian paternalists which is how I would describe the debate between Max and Tom and the Fekete – Mises smackdown that I have provided numerous links to below. That’s a very interesting and highly educational debate which I would encourage anyone who wants to expand their mind should dive right into. But there’s a third level to this debate. That level is about free will, [and...] human consciousness.

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Is gold really honest money? One thing that occurs to me is that Gold is particularly subject to this idea of bankers cornering the market and then controlling the price by flooding the market or with-holding gold from the market in order to drive the price up. At least Bitcoin has not already been monopolized as gold has… plus it seems to me that the kind of people who hoard gold are the least honest kind of people.

In short, bitcoin maybe the only form of honest money. I could easily see these two tribes being opposed to one another. One steadfastly gripping onto the old world, and old money, the other embracing a new, non-material money.

Litecoin…another currency created to serve market demand…but there’s no inflation. Feathercoin…another currency created to serve market demand. Figure it out. The people making these coins are getting rich! It’s too late now. Bitcoin is nearing implosion as the largest holders have been silently liquidating since May 2013 when they possessed over 30% of all bitcoins.

Bitcoin satisfies the regression theorem in the same way the fiat currency does – it is traceable back to “yesterday’s” money. Also, it is in a transitory stage – it is not *yet* money, as it is not yet widely accepted.

To be honest, I don’t think Bitcoin would survive as money in a freed market. But against the fiat dollar? The decentralized production of it could very well push the dollar to the fringes, despite legal tender laws. But if it does, it wouldn’t be because it was good money – in fact, it would mean the exact opposite.

Ironically, due to Gresham’s Law and legal tender laws, the success of Bitcoin can only occur if it is *worse* than fiat currency.

Fiat national currencies have the legal tender status of being acceptable for payments of taxes to the State which really doesn’t depend on regression theorem for monetary value justification. Bitcoin more appropriately represents a voluntary, shared mass illusion rather than a government-imposed mass illusion.

Regarding Gresham’s Law, that only applies in an environment of preferred legal tender status, so the prevailing ‘bad’ money would be the artificial government currency while the ‘good’ bitcoin would tend to be more of a store of value.

Would it be reasonable to say that a utility such as Jack Dorsey’s square when functioning with an on-screen mobile phone glyph to purchase a coffee at Starbucks would be sufficiently frictionless as to result in a “near-reversal” of Gresham’s Law?

According to Prof. John R. Garrett at U Tenn, “A gold flow falsification was over 2/3′s as effective as an open-market operation.” If tech as a convenience yield did reverse Gresham’s Law, or at least come close (say with support from bitcoin via the disintermediation of payment gateways/costs and financial support from advertising, say via sponsorship by Facebook advertisers) as in the success of hybrid payment-reward systems such as LevelUp causing a decline in friction as steep as Zynga’s stock price chart what only seemed impossible becomes as real as a negative interest rate policy. The trick comes in getting you to exchange your paper currency for the promise of modern jubilee.

Lagos and Rocheteau addressed the Gresham/friction issue somewhat in a paper for the Fed titled “Money and Capital as Competing Media of Exchange” which I attempted to respond to in this April 2, 2012 piece: http://tradewithdave.com/?p=9772

Gresham’s Law applies only when there is a fixed exchange rate between two monies (such as happened with gold and silver). When no fixed exchange rate exists, Gresham’s Law, strictly speaking, is not applicable. Since there is nowhere a fixed rate between Bitcoin, gold, or USD, there is no room for discussion of Gresham’s Law regarding the interaction of these monies.